Reported Decision : 44 ACSR 152 New South Wales Supreme Court CITATION : Atkinson v Australian Rural Group Ltd [2002] NSWSC 1232 revised - 5/05/2003 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 5819/02 HEARING DATE(S) : 17 December 2002 JUDGMENT DATE : 17 December 2002 John Edward Atkinson (Plaintiff) Australian Rural Group Limited (in liquidation) (First Defendant) PARTIES : Oceania Agriculture Limited (Second Defendant) Endwise Holdings Pty Limited (Receivers and Managers Appointed) (Third Defendant) Gerard Cassegrain & Co Pty Limited (Receivers and Managers Appointed) (Fourth Defendant) JUDGMENT OF : Campbell J D Hammerschlag SC; J P Robinson (Plaintiff) COUNSEL : D R Pritchard (First Defendant) P Brereton SC; A R Vincent (Second Defendant) Clayton Utz (Plaintiff) SOLICITORS : Henry Davis York (First Defendant) Hunt & Hunt (Second Defendant) CATCHWORDS : SECURITIES - managed investment scheme - provision requiring Trustee to retire - whether satisfied - DEEDS - construction and interpretation - distinction between definitions and references to something - when a provision in a deed makes "a reference to … winding up" LEGISLATION CITED : Corporations Act Corporations Law CASES CITED : Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 DECISION : Trustee has retired IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST CAMPBELL J TUESDAY 17 DECEMBER 2002 5819/02 JOHN EDWARD ATKINSON v AUSTRALIAN RURAL GROUP LIMITED (IN LIQUIDATION) JUDGMENT 1 HIS HONOUR: This is a dispute relating to a managed investment scheme which concerns the growing of teatrees for the manufacture of Teatree oil. The plaintiff is an investor in the scheme. The first defendant is a company which is now in liquidation and has acted as trustee for the scheme. The second defendant is the manager of the scheme. Other defendants play other roles in the managed investment scheme. The dispute concerns whether the Trustee has effectively retired. 2 There are, in fact, two managed investment schemes, each established under its own deed. One of those deeds was entered on 1 April 1997, the other on 11 February 1998. However they are the same in all material respects, and it is possible to decide the question by reference to just one of those deeds. 3 The clauses of the deed which are of central relevance are as follows. There is an obligation on the Trustee under clause 34.1 to exercise all due diligence and vigilance in carrying out functions of duties and in protecting the rights and interests of the Farmers. (The investors in this scheme are referred to as Farmers). 4 Clause 37.1 provides: "The Trustee covenants subject to the provisions of the Corporations Law and the Corporations Regulations that it will retire from the Project at the Manager's request in any of the following events: (a) if it shall be placed into liquidation (except for the purpose of amalgamation or reconstruction or some similar purpose) or in official management or if a receiver or receiver and manager is appointed in relation to the property of the Trustee and is not removed or withdrawn within 30 days of the appointment, or if it ceases to carry on business; (b) if it fails or neglects after reasonable notice from the Manager to carry out or satisfy any duty imposed on the Trustee by this deed..." 5 Clause 46 provides for the project to continue for 80 years less one day, subject to provisions for it to terminate earlier. The relevant provision for earlier termination, for present purposes is that contained in clause 46.2: "(c) If: ... (ii) any event occurs, which adversely affects the rights of Farmers under the Licence and Management Agreements or in the opinion of the Trustee and the Manager has the effect of materially diminishing the amount available for distribution to Farmers; then the Manager and the Trustee may agree that the Project shall determine." 6 Clause 46.4 also provides: "If the office of the Trustee of the Project becomes vacant and a new Trustee or Trustee is not appointed within 60 days of the vacancy occurring the Project shall terminate." 7 The project was begun at a time when the price and market for Teatree oil was much more favourable than is now the case. There was a significant decline in the price and market for Australian Teatree oil in late 1999 or early 2000. That led the Trustee and the Manager to consider what the future of the project should be. On 22 November 2001 the Trustee issued a report in which it concluded that the project should be wound up as soon as possible. However, a meeting of Farmers later in 2001 did not agree with that view. 8 On 29 July 2002 the Ttrustee filed a statement of facts in some proceedings in which it sought judicial advice. For the purpose of that judicial advice proceeding, the Trustee said that it was of the opinion that the project ought be terminated under clause 46.2 of the Project Deed, that the Manager had the same opinion, but that: "They hesitate to terminate the Projects while doubt exists as to whether the present and reasonably foreseeable future state of the industry as stated herein constitutes sufficient ground for the exercise of the power." 9 The advice of the court was sought on whether, given certain facts about the state of the market which was set out in that Statement of Facts, the Trustee would be entitled to form an opinion under clause 46.2(c)(ii) of the Project Deed. 10 Notice of the application was given to various interested beneficiaries. Those beneficiaries informed the court that they did not agree with some of the factual matters that had been stated in the statement of facts. That led to Macready AJ, on 24 September 2002, declining to give judicial advice. 11 In the meantime, the plaintiff, on 20 September 2002 had commenced proceedings number 4717/02 in the Equity Division of this court against the Trustee, the Manager, and another company which had lent money to some of the investors. The relief which the plaintiff sought was a declaration that a purported resignation by the manager was ineffective, and that no grounds had arisen to justify termination of the project under clause 46.2(c). 12 On 27 September 2002 there was a resolution of directors of the Manager that the Trustee should be advised that the Manager had formed the view that the projects "shall terminate at midnight on 27 September 2002 unless the Trustee advises that it does not intend presently to resolve likewise". 13 On 27 September 2002 the manager sent an urgent fax to the Trustee, informing it of that resolution, and saying: "Could you please confirm ARG Limited, having formed the opinion with the Manager that the collapse of the price of Teatree oil is an event that has the effect of materially diminishing the amount available for distribution for Farmers...that the effective date of termination of the...Projects...shall be midnight 27 September 2002." 14 That way of proceeding came to an abrupt halt, because on 27 September 2002 the board of the Trustee resolved that administrators should be appointed to the Trustee. 15 Hunt & Hunt solicitors had acted for the Trustee up to that time. On 30 September 2002 Hunt & Hunt sent to the newly appointed administrators a letter in which they informed them that the Manager had been pressing them for instructions to terminate the project. By that time the Trustee had received written advice from senior and junior counsel, to the effect that upon the basis of the facts set out in the statement of facts which had been submitted to the court for judicial advice, the Trustee would be justified in forming the opinion that clause 46.2(c)(ii) called for, and that the Trustee would be entitled to terminate the project, once the judicial proceedings were concluded. Hunt & Hunt in their letter of 30 September said that they agreed with counsels' view that it would be appropriate for the projects to be determined. They said that they were of the view that ARG ought to agree with the Manager to terminate the projects as soon as possible. On that same day Hunt & Hunt wrote a letter to the ongoing directors of the Trustee, advising that the trustee was entitled to form that opinion under clause 46.2(c)(ii). 16 The Manager set about trying to spur the administrators into action. On 1 October the Manager sent a fax to the administrator which used the word "urgent" twice and requested that they contact the Manager. There was a second urgent fax from the Manager to the administrators that day, which said that if the administrators had difficulties or were unable to act on the clear legal advice that had been received from senior counsel and from Hunt & Hunt in relation to the termination, could they please advise urgently. They said each day of delay was causing the Manager losses. 17 The administrators, however, had more responsibilities than just responding to the Manager's urgings. On 3 October 2002 the administrators wrote back to the Manager saying that they had formed the preliminary view that termination of the project was in the interests of the Trustee (I pause to note that whether or not termination of the project was in the interests of the Trustee is not a relevant matter for the purpose of Clause 46.2(c)(ii) of the Deed.) The administrators continued in that letter to say that ASIC had an application on foot to appoint a receiver to the Trustee and certain subsidiaries, which was last heard on 2 October 2002, on which date a receiver was not appointed. They said: "It was agreed with ASIC that we as voluntary administrators would give ASIC the opportunity to have input on all decisions of the voluntary administrators that may affect investors." 18 The recommended termination of the project was, they said, such an event. They therefore proposed sending a draft notice of termination to a lawyer at ASIC for its approval. They also requested that they be sent a copy of a statement of claim of the proceedings which Mr Atkinson had begun seeking to restrain the Trustee from terminating the project. 19 On 22 October 2002 the administrators wrote again to the Manager, requesting further information for the purpose of deciding about the termination issues. They requested a substantial volume of material, identified in seven dot points. 20 On 22 October 2002 the Manager wrote to the administrators, urging them not to seek their own legal advice about whether the project should be terminated. The Manager said, in effect, that Hunt & Hunt knew all about this problem, and the administrators should go to them. 21 On 24 October Hunt & Hunt sent to Henry Davis York, who by that time had been engaged as solicitors for the administrators, a folder containing the statement of facts and exhibits that had been produced for the purpose of the judicial advice proceedings. Also on 24 October, the administrators wrote back to the Manager, rejecting the suggestion that they should not obtain independent advice. 22 This prompted the Manager to issue to the Trustee a document which is of central importance in these proceedings on 25 October 2002. This document appears at p 126 of Exhibit MJR 2. It says: " WHEREAS Oceania Agriculture Limited [ACN 076 400 872] is the Manager of the abovenamed Projects AND M.W. Prentice and M.J. Robinson are Administrators appointed on 27 September 2002, in relation to the property of the Trustee. NOW TAKE NOTICE that in the event that M.W. Prentice and M.J. Robinson's appointment as Administrator in relation to the property of the Trustee are not removed or have withdrawn on or before 27 October 2002, you are notified that pursuant to Clause 37.1 of the respective Project Deeds, that the Manager hereby requests ARG to retire as Trustee of the abovenamed Projects and that such retirement in accordance with the Trustee' covenant shall take effect on midnight, 27 October 2002." 23 On 28 October Henry Davis York wrote to the Manager, saying: "We would be pleased if you would direct our attention to that part of clause 37.1 of the Project Deed which is relied upon by you in the notice. If subclause (a), we note that ARG has not been placed in liquidation, official management or receivership. Accordingly, we would be pleased if you would inform us of the facts and circumstances relied upon by you to assert that ARG has ceased to carry on business." 24 They went on to say that they had been instructed to advise the Administrators on the Manager's request to issue notices of termination of the projects. They said that they expected to have that advice to their clients within the next day or so. 25 On 28 October Clayton Utz, solicitors for Mr Atkinson, wrote to Henry Davis York asserting that it would be premature and improper, in circumstances where it was anticipated that there would be proceedings by the growers to dispute the correctness of the facts which had been asserted about the market for the Teatree oil in the statement of facts, for the administrators to be satisfied that the events contemplated by clause 46.2(c)(ii) had occurred. Clayton Utz sought an undertaking not to terminate the project pending the determination of those proceedings. 26 On 29 October the Manager wrote to Henry Davis York, seeking to justify the notice which it had served on 25 October, on the basis of both a failure to carry out a duty which triggered clause 37.1(b) of the deed and also under clause 37.1(a). 27 On 30 October, the Manager declined to indemnify the administrators for any liability which those administrators might incur if they were to issue a notice of termination under clause 46.2(c)(ii). 28 On 30 October the Manager wrote to ASIC, making an application said to be under s 1067(3) of the Corporations Act seeking to act, itself, as Trustee or a representative of the Trustee, for the purpose of issuing a notice of termination of the project. I note, in passing, that it seems that it was in this document that there was first an allegation that there actually was an agreement between the Trustee and the Manager that the project should be terminated. 29 On 5 November Henry Davis York wrote to Hunt & Hunt, requesting a copy of the judgment which Macready AJ had given in the judicial advice proceedings. 30 On 5 November the administrators wrote a letter to the Manager, which is another document of central importance in this litigation. This document appears at p 180 and 181 of Exhibit MJR2. It says: "We refer to your notice dated 25 September 2002 which requests that Australian Rural Group Limited (Administrators Appointed) ("ARG") compulsorily retire from the office of Trustee of the Port Macquarie Tea Tree Plantation Projects pursuant to clause 37.1 of the Project Deed in respect of the above projects dated 1 April 1997 ("the Project Deed"). We note that Oceania Agriculture Limited ("OAL"), in its role as Manager of the Port Macquarie Tea Tree Plantation Projects, has formed the view that circumstances have arisen which entitle it to request that ARG compulsorily retire under clause 37.1 of the Project Deed. We also note that OAL relies primarily on clause 37.1(a) of the Project Deed in making that request. We doubt that the present circumstances of ARG are within the contemplation of clause 37.1(a). Nevertheless, we have formed the view that we are not in a position to answer OAL's persistent calls to issue a notice of termination of the Projects, particularly bearing in mind the pending litigation of Mr John Atkinson and the possibility that we, in our position as administrators of ARG, may incur personal liability should Mr Atkinson ultimately succeed with his litigation. Nor are we able to conclude that the Projects should remain on foot when the evidence made available to us overwhelmingly indicates that the Projects are unlikely to be viable within any reasonable period of time. Consequently, we consider that the circumstances contemplated by clause 37.1(b) (and perhaps clause 37.1(d)) of the Project Deed have now occurred and that it is to the benefit of all parties having an interest in the Projects that we comply with your request. In the circumstances, and in accordance with ARG's obligations under the terms of the Project Deed, we confirm ARG's retirement with effect from midnight on 27 October 2002." 31 Enclosed with that letter was a Notice to Farmers dated 5 November 2002 which reads: "We were appointed administrators of Australian Rural Group Limited (Administrators Appointed) ("ARG") by a resolution of the board of that company on 27 September 2002. Late on 25 October 2002 we were served with a notice from Oceania Agriculture Group Limited ("OAL") requesting ARG to compulsorily retire from the office of Trustee of Projects 1 & 2 of the Port Macquarie Tea Tree Plantation under clause 37.1 of the respective Project Deeds. Having considered OAL's request (including obtaining legal advice on it), we consider that circumstances contemplated by clause 37.1 of the Project Deeds have now occurred and we are, therefore, obliged to comply with the request. Accordingly, we advise that ARG has retired as Trustee of the Projects in accordance with its obligations under the terms of the Project Deed. ARG's retirement came into effect from midnight on 27 October 2002." 32 The administrators wrote to Clayton Utz on 6 November, notifying them that they had retired, and sending Clayton Utz copies of the relevant documents. Clayton Utz wrote back the next day, disputing the validity of the retirement. These proceedings are ones which Clayton Utz has begun on Mr Atkinson's behalf, seeking a court decision about that question. 33 In the meantime, the administration of the Trustee was running its course. The administrators reported to the creditors at a creditors' meeting on 12 December 2002, and as a consequence of a resolution at that meeting the Trustee was placed in liquidation. That has resulted in the Manager giving to the Trustee another notice, on 16 December 2002 without prejudice, invoking clause 37.1(a) on the ground that the Trustee went into liquidation on 12 December 2002. 34 The first question which arises in this case is whether the conditions in clause 37.1(a) have arisen. 35 One matter relevant to that question is that there had once been provisions in the Corporations Law, and in legislation which preceded it, making provision for the appointment of official managers. Part 5.3 of the Corporations Law, running from s 435 to 458, contained those provisions. However it was repealed effective from 23 June 1993. On that date, and by the same legislation which had repealed the provisions concerning the official management, a new Part 5.3A was introduced into the Law. It ran from s 435A to 436B, and set up the regime for the appointment of administrators to companies. While the Law retained a definition of "official manager", presumably to cover official managers appointed before 23 June 1993, no new appointments of official managers could be made. This was the situation at the time the deeds establishing these managed investment schemes were executed. 36 The Manager submits that the trustee has effectively retired, under the provision in 37.1(a). 37 In deciding that contention, it is relevant that the deed contains a clause 1, headed "Preliminary and Interpretation". It is divided into two subclauses. Clause 1.1 is headed "Definitions", and runs of the order of six pages. It takes the form of a series of short paragraphs each of which sets out a word or an expression in quotation marks and then states what that word or expression means. Clause 1.2 is headed "Interpretation". It contains provisions such as: "(a) a reference to any legislation or legislative provision includes any statutory modification or re-enactment of, or legislative provision substituted for, and any subordinate legislation issued under, that legislation or legislative provision; (b) the singular includes the plural and vice versa; (c) a reference to an individual or person includes a corporation, partnership, joint venture, association, authority, trust, state or government and vice versa; (d) a reference to any gender includes all genders; ... (o) a reference to bankruptcy or winding-up includes bankruptcy, winding-up, liquidation, dissolution, becoming an insolvent under administration (as defined in s 9 of the Corporations Law), the appointment of an administrator and the occurrence of anything analogous or having a substantially similar effect to any of those conditions or matters under the law of any applicable jurisdiction, and to the procedures, circumstances and events which constitute any of those conditions or matters; and …." 38 It is clear enough that, in the literal sense, the Trustee was not placed into liquidation at the date that the notice called on it to retire was issued, nor was it in any literal sense, in official management. However, a question arises of how the provisions in clause 1.2 relate to clause 37.1. 39 The way in which clause 1.2 deals with "references" in the deed to various kinds of things is, in my view, to be contrasted with the way in which clause 1.1 sets out definitions of words and phrases. Clause 1.1 tells the reader what meaning is intended when some precisely identified word or phrase is used. Clause 1.2 expands the meaning of the words used in the Deed, not when a precisely identified word or phrase is used, but when a particular concept or type of expression is used. And the one concept can be expressed by various different words or phrases. 40 The Macquarie Dictionary defines "Reference" as being: "1. the act or fact of referring. 2. direction of the attention. 3. a mention; allusion..." 41 "Refer" in turn means: "1. to direct the attention or thoughts of. 2. direct for information or for anything required..." 42 It seems to me that a reference to winding-up is made by the expression in clause 37.1(a) "If it shall be placed into liquidation". There is no relevant difference in meaning between "winding up" and "liquidation". A reference by language is, it seems to me, the pointing out or indication by language of some thing or state of affairs. The words "if it shall be placed into liquidation" in clause 37.1(a) do indicate or point out the state of affairs of winding-up. It therefore seems to me that the provisions of clause 1.2(o) are brought in to play, and that the wording "If it shall be placed into liquidation" in clause 37.1 includes a reference to the appointment of an administrator. 43 A deed like this deed establishing a managed investment scheme is a contract of adhesion, so there is no room to interpret it by reference to background facts known to individual parties. However it is possible to use the notion of purposive construction in one way. That is, that if a particular construction produces a result which is impractical or uncommercial, that would be a good reason for rejecting it. 44 In the ordinary course of things, a provision like clause 37.1(a) is one which is designed to ensure that if a trustee is insolvent, or at risk of insolvency, it is able to be removed. It seems to me that it is commercially completely sensible to have clause 37.1(a) construed so that it is possible for a Trustee to be removed if the Trustee comes to be subject to administration. As I have said, the only legitimate use that can be made of that fact is that consideration of the practical consequences of adopting it does not provide a reason for rejecting the construction which otherwise seems to me to be the right one. 45 The Manager has also submitted that the expression "or in official management" in clause 37.1(a) should be construed so that it refers to administration. 46 I have some doubt about this. Notwithstanding some similarities, official management and administration are not the same. I also have some doubt whether use can be made, in this context, of clause 1.2(a). It is true that the official management provisions of the Corporations Law were replaced by the administration provisions. It is also true that official management is an institution which existed only because there was legislation which established it. However I think it is probably stretching it too far to say that the words "or in official management" in clause 37.1(a) themselves are a reference to any legislation or legislative provision. 47 However, in light of the view that I have come to concerning the application clause 1.2(o) to the expression "If it shall be placed into liquidation", it is not necessary to express a final view about this. 48 The manager also submitted that the conditions in clause 37.1(b) were satisfied because the Manager and the Trustee had agreed that the manager would retire. 49 I am not satisfied that there was any such agreement. As I have earlier remarked, it was only on 30 October that the Manager first made an allegation that there was any such agreement. The conduct of the Manager, in continually urging the Trustee to make a decision, is at odds with any agreement already being in place. 50 Another basis on which the Manager asserts that the retirement was justified was that clause 37.1(b) was satisfied because the Trustee did not give adequate and prompt consideration to whether the project should be terminated. There can be little doubt that the Trustee would be under an obligation, not only pursuant to its express duty under clause 34.1, but also by virtue of the nature of the office undertaken under the deed, to give consideration to whether it should exercise, from time to time, discretionary powers which it had. That would include giving consideration to whether it should exercise its discretionary powers under clause 46.2(c)(ii). 51 I note, also, that counsel for the Trustee takes the forensically unusual course of submitting that the Trustee has been in breach of its duty in not having made a prompt decision about whether to agree to the termination of the deed. 52 Notwithstanding this concession on the part of the Trustee I am not persuaded that the Trustee was in breach of its duty. The history which I have outlined shows the Trustee was endeavouring to put itself into a situation of being able to make a decision. The relevant date for considering whether an obligation to retire under clause 37.1 has arisen is the date when the Manager issued the notice calling on the Trustee to retire. By that date, the administrators had been appointed for 30 days, and they had been seeking to come to grips with the quite difficult problem which they needed to solve concerning whether this project should continue or not. It seems to me that, even though at a later date – by which I mean by its letter of 5 November - the Trustee gave some indication that it might not make a decision on this topic, that was not the situation at the relevant date. 53 I note that the Manager has also submitted that there has been an effective retirement, even if it is in breach of the strict provisions of the deed. This submission is put by analogy with cases such as Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435. 54 In the circumstances, it is not necessary for me to express a view concerning this matter. 55 The Manager and the Trustee also submitted that there would be no utility in granting a declaration about whether the retirement had been effectively carried out. I disagree. In my view, particularly because of the provisions of clause 46.4, it is important to know precisely when it is that the project shall terminate. 56 I grant leave under s 471B Corporations Act for the plaintiff to bring these proceedings. 57 I declare that the Trustee has effectively retired. Notwithstanding that the trustee purported to retire with effect from midnight on 27 October 2002, I do not see how that could have been done, when the Trustee had made no decision to retire, and had not communicated it. 58 I declare the retirement of the Trustee was effective from 5 November 2002. 59 The defendant seeks costs of the proceedings. The plaintiff opposes that, on the ground that by the letter of 5 November 2002 the administrators doubted that the circumstances were within the contemplation of 37.1(a) and relied expressly on clause 37.1(b), and also perhaps clause 37.1(d). 60 In my view, that is not a relevant situation. When they have retired, their retirement is effective regardless of the reasons that they give for it. Further, the case for the defendants was presented on the basis of relying on both clause 37.1(a) and 37.1(b). 61 I order the plaintiff to pay the costs of the defendants. ********** Last Modified: 05/07/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.